Labour Research May 2021


Privatisation and the market fails children

Something is going badly wrong in the children’s social care ‘market’, with private companies making huge profits in a broken system failing thousands of vulnerable young people.

Independent organisations now provide nearly three in four children’s homes and two in five fostering households, with the two biggest independent fostering providers offering nearly a third of all independent fostering places in England, according to the LGA Local Government Association body for local authorities in England and Wales. They include private companies and charitable bodies

In January 2021, the LGA called for a review of private equity involvement in children’s social care placements after new research found independent providers are growing rapidly and some are making profits of more than 20% on their income (see box).

Profit-making and risk in the market

A December 2020 report by consultancy Revolution Consulting, commissioned by the Local Government Association (LGA), shows that the six largest independent providers of children’s placements made £219 million in profit in 2020.

Meanwhile, four of the seven largest groups of independent providers had “more debts and liabilities than tangible assets”, said the study, Profit making and risk in independent children’s social care placement providers.

“The largest providers of children’s placements are growing rapidly and continuing to acquire other providers,” said LGA children and young people board chair Judith Blake. “The potential risks involved in their considerable debt levels is an issue that the government must consider alongside greater financial support for children’s services.”

Blake added: “We cannot risk a Southern Cross or Four Seasons situation in children’s social care,” alluding to the collapse over the course of the last 10 years of debt-ridden adult care home providers owned by private equity groups.

Some placement costs are rising far beyond inflation, “putting pressure on budgets that are already at breaking point”, the LGA added. Rising demand for placements has seen councils overspend on children’s social care by more than £3 billion over the past five years.

Four in five councils reported rising costs for fostering and residential placements for children in care due to COVID pressures last year. And councils are reporting increasing difficulty in finding suitable places for children in care, particularly for older children and those with more complex or challenging needs (see box on page 11).

In November 2020, the then children’s commissioner for England, Anne Longfield, also pointed to a “growing reliance on private providers, some of whom are making millions” and accused both government and councils of failing in their responsibilities “by leaving it to the market”. 

She published three reports, including Private provision in children’s social care. This looked at the growth of private companies providing foster placements and children’s homes and showed that private provision accounted for 73% of the growth in the number of children in care between 2011 and 2019.

The number of children in homes provided by the private sector grew by 42% over this period, while local authority provision had not kept pace, and actually shrunk in some areas.

She highlighted similar concerns to the LGA in respect of excess profits and high levels of debt. Her report also sets out that the system is “opaque”, with “detailed and complex investigation needed to understand the ownership, accountability, profits, costs, and prices of different providers”.

Providers of children’s homes are now charging councils around £4,000 per week, on average, according to data from the National Centre for Excellence in Residential Childcare which provides research into practice in children’s residential care. They had increased their charges by 40% between 2013 and 2019, from £2,841 to £3,970.

At the same time, former children’s commissioner for England Anne Longfield described the children’s residential social care system as “broken” and “failing many of the most vulnerable children (see box). And she referred to an “increasingly fragmented, uncoordinated and irrational market”.

Market means misery for young people

Around 99,000 children live under the care of their local authority across England, Scotland and Wales. The majority, around 65,000, live in foster care.

Around 16,000 children live in residential care, including children’s homes and independent or semi-independent living accommodation.

The remaining 18,000 live in a range of other types of placement, including with their parents or placed for adoption.

According to a report by former children commissioner for England Anne Longfield, The children who no-one knows what to do with, 8,000 children have three different homes within a single year; 13,000 end up in unregulated homes at some point during the year; and hundreds of children need a place in a secure children’s home but cannot get one anywhere in England. Councils use secure children’s homes when children are a significant risk to themselves or others and no other type of placement can keep them safe.

One teenager described being placed eight hours from her home town and not seeing her mother for months. Other children said they felt “dumped” in areas they had never heard of and could not identify on a map.

They were then isolated at home for months waiting for a school place.

UNISON public services union national officer Gill Archer said a lot of children end up in out-of-borough placements where there is “a lack of support from unskilled staff, a long way from friends, family, local support networks and from their social workers and schools.”

She added: “It’s costing more to provide a worse service. Children are not seen by social workers, they are isolated, vulnerable, distressed and disorientated.”

The 2020 Stability Index, the Children’s Commissioner’s fourth annual report on the instability experienced by children in care, shows that one in 10 children in care moved home at least twice in 2018-19 and one in four moved at least twice in two years.

Just over 11% of children in care enrolled at school in 2019 had a change of school during the school year.

Over the last two years, 6,500 children in care had at least four separate homes to live in over two years, with older children more likely to experience multiple home moves.

Launching the independent review of children’s social care earlier this year, the Department for Education reported that children who have been in care make up a quarter of the homeless and 24% of the prison population.

Over a third of care leavers (39%) are not in education, employment or training compared to 13% of all 19- to 21-year-olds. And only 13% progressed to higher education by age 19 compared to 43% of all other pupils.

The LGA called for “greater national oversight of companies providing homes for children in care, like the role the Care Quality Commission (CQC) holds for adult social care provision”.

In March 2021, following a request from Josh MacAlister, chair of a new review of children’s social care, the Competition and Markets Authority — a non-ministerial government department responsible for strengthening business competition — announced an investigation into the high costs paid by councils for children in their care and the inadequate supply of appropriate placements. But unions argue that there shouldn’t even be a market in children’s social care.

“We need to see more funding going into councils, so they can spend more on the services we need,” GMB general union national officer Rachel Harrison told Labour Research. “But the issue will remain if we have private companies operating the system.” The GMB wants to see all social care — including adult and children’s social care — taken back in-house under public ownership, not least because it wants profiteering in the sector prohibited.

The Association of Directors of Children’s Services recently warned of a shortfall of £824 million for local authority children’s services in 2020-21, pointing out that government funding for children’s social care fell by 23% between 2010-11 and 2018-19.

“At the same time, we see £265 million of public funding going in private profits,“ UNISON public services union national officer Gill Archer said.

“And that’s not the total amount, as money is also going on private employment agencies and headhunting, while local authorities also have transactional commissioning and negotiating costs.”

It costs twice as much to pay a private agency for a foster carer than a local authority one because of agency fees, Harrison said. “It’s not that the standard of care is necessarily made worse by privatisation,” she explained. “But there is an impact on local authority resources.” She said foster carers appointed by private foster agencies generally report feeling more supported, appreciated, valued and have more access to training.

But she believes this is down to local authority funding shortfalls. For example, a foster carer member in Northern Ireland recently told the union he needed access to very specialised training to deal with a child being placed with him.

“The council said it couldn’t justify the expense of the course; the private agency said the local authority should pay because the course would benefit the child,” she added. “Our member was stuck in the middle — as was a child not benefiting from a placement that was the best for them.”

Impact of privatisation on the workforce

Privatisation has also badly affected the workforce in children’s care homes. “The staff are the service,” said Archer. “One way of generating profits is to cut terms and conditions.”

Harrison said workers in privately-run children’s homes are on minimum pay rates, with no entitlement to contractual sick pay, so reliant on Statutory Sick Pay (SSP) of around £96 a week if they get ill, and no enhanced annual leave.

“If they were employed by the local authority they would benefit from nationally negotiated pay and conditions, which is a lot better,” she told Labour Research. “They would have contractual sick pay, enhanced annual leave and much higher hourly rates of pay”.

During the COVID pandemic, staff also missed out on the hundreds of millions of pounds of government funding for infection prevention and control that allowed providers to access money to pay full sick pay to enable workers in adult social care to self-isolate.

And because the government did not deem children as high risk, this workforce was not prioritised for testing and was missed out of guidance on personal protective equipment, leaving them “vulnerable and exposed”.

A further blow is the recent Supreme Court ruling on sleep-in payments (see Labour Research, April 2021, page 19). The ruling means that already badly-paid staff required to sleep in because of the need for 24/7 care do not have to be paid for this time at the National Minimum Wage (NMW). They can instead be paid a lower flat rate.

There are also lower pensions, less training and development and poorer staffing ratios in the private sector, according to Archer. Despite the huge fees providers are charging local authorities, residential support workers often receive very basic training, particularly those in unregulated placements.

Independent and semi-independent placements that provide support rather than care, commonly known as unregulated provision, will be banned for children aged under 16 from September 2021.

“The unregulated placements do not pay their staff well and certainly disproportionately low given the fees often charged — £1,000 a week is not unusual,” Archer said. “Training appears to be basic and not dissimilar to what a hostel worker may expect. Some try to make recruitment packages look more attractive by including things like mobile phone deals.”

Both Archer and Harrison describe a very fragmented and isolated workforce, making union organisation challenging.

Despite these challenges, UNISON has been considering a further recruitment push and will bring together members in the sector in a webinar to discuss how the union can support them.

MacAlister review concerns

Meanwhile, both the GMB and UNISON have concerns about the MacAlister review. Harrison said her biggest concern “is that a review is needed, but reform is needed more.

“If COVID’s taught us anything, it’s that a fragmented social care system has played a huge part in how badly social care has suffered throughout the pandemic, because it wasn’t equipped to deal with it.”

The GMB submitted evidence to the national fostering “stock take” and the education select committee inquiry into fostering several years ago. “We’ve seen very little, if any, of those recommendations implemented and all of our recommendations remain outstanding,” Harrison said. “It’s frustrating that this appears to be yet another review that will probably find the same things that were found three, four, five years ago and doesn’t lead to any change.”

The union has five key demands for all social care, including children’s social care, which call for pay justice — recognition and reward for social care roles on rates above the NMW and occupational sick pay; professionalisation of the workforce — with national standards and genuine career development; safe staffing levels; national sectoral bargaining; and everything brought back in-house.

It is also campaigning for more rights and support for kinship carers — families and friends who take children in to keep them out of the fostering and the residential care home system.

“It is unbelievable that they do not have any rights to time off from work, like those who are adopting; they are not entitled to financial support and they get very little support from the local authority,” said Harrison.

Archer said the government has not promised any additional money, so any recommendations the review makes will have to be funded by savings elsewhere.

She believes the deadline of the end of March 2022 is unrealistic for such a broad review, and is concerned there may already be “a ready-made template for the radical restructuring of children’s social care and social work that will take it out of local authority control.

“The likely outcome of the MacAlister referral of the children’s social care market to the Competition and Markets Authority is that privatisation should be made to work better, as it has the task of promoting competition within diversified markets,” she said.

“There is a [government] focus on struggling families and UNISON is concerned it may be looking at trying to take child protection out of public hands — something it proposed a few years ago, before backtracking.”

She added: “The direction of travel is very worrying. UNISON’s view is that there should be publicly and locally-planned and managed help for families, provided by members of a community-based social services workforce and with local employee involvement. This is part of our wider campaign to rebuild local government and public services. Social workers rely on those wider services or they just end up safeguarding.”

And Harrison said: “Until we start to recognise the social care workforce, whether that is a carer employed in a care home or a foster carer who is classed as self-employed — and valuing what they do, financially, emotionally and mentally — the crisis will continue.”

Children’s Commissioner for England, Private provision in children’s social care (

Children’s Commissioner for England, The children who no-oneknows what to do with (

Children’s Commissioner for England, Stability index 2020 (

LGA, Profit making and risk in independent children’s social care placement providers (

An independent review of children’s social care in England (